How Mortgage Lenders May Finally Get The Fintech Respect (and Valuations) They Deserve

Industry disruption is thrilling or terrifying depending on where you sit. Some mortgage folks might be terrified viewing MBA projections about 2020’s record 7.13m refi units dropping 78% by 2022. Others might be thrilled knowing they’ll use their fintech power to deepen relationships with all of those recently acquired customers.

A lender like Homebridge might be in the thrilled category after funding $25b in new mortgages last year and merging with fintech unicorn Figure this week.

Now they can take the skill that they and so many other great originators have — acquiring new mortgage customers at scale — and keep those customers long-term with a new suite of non-mortgage products and modernized servicing.

As Figure CEO Mike Cagney just explained, it’s definitely easier to grow a relationship having acquired a customer with the most difficult consumer finance product — mortgage — than it is to grow a mortgage relationship from a simpler product.

Yet, the latter is the state of the fintech cycle to date. VCs fuel fintechs with billions of dollars to acquire millions of customers on simple deposit or personal loan products, and these fintechs are rewarded with rich valuations. Meanwhile recently IPO’d mortgage firms who’ve funded hundreds of billions of dollars of loans over full market cycles are seeing stock prices languish.

Hence the dealmaking. We may look back at this Figure/Homebridge deal as the key inflection point of fintech and mortgage finally coming together to do 2 things:

(1) Give consumers the modern bank-on-your-phone experience they expect for ALL products including complex products like mortgage, and

(2) Create highly-valuable banker/lenders of tomorrow while giving mortgage lenders the fintech respect they deserve.

Here’s Mike on this important Figure/Homebridge deal, and his full post is linked below.

Mortgage is perceived as transactional and rate driven, while fintech is perceived as comprehensive, tech-forward and relationship driven.

Investors are willing to give fintechs time to prove out their thesis of low-cost cross sell and high contribution and profit margins. VCs have taken the “Let’s get 15 million customers, and then we’ll figure out how to monetize them” approach to markets like challenger banking. But mortgage has some significant advantages in the battle for the customer, including better data and, interestingly, human loan officers.

The challenge in executing against lofty fintech valuations is that ultimately fintechs need to figure out how to sell mortgages. Mortgages are the largest consumer loan market – $13T and counting. The mortgage industry generated $60B in profit in 2020. I think that it is easier for a mortgage company to cross-sell TO a mortgage FROM another product than a fintech, and that it is easier to cross-sell another product FROM a mortgage rather than TO a mortgage. This is the first of two core theses in our merger…

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Reference:

– How Mortgage Lenders May Finally Get The Fintech Respect (and Valuations) They Deserve